PARLIAMENTARY DEBATE
Alcohol Duty - 19 December 2022 (Commons/Commons Chamber)

With permission, Mr Deputy Speaker, I would like to make a statement on the alcohol tax system.

When in the autumn 2021 Budget the then Chancellor—now Prime Minister—announced the biggest reforms to alcohol duty in 140 years, he did so in order to change an outdated and impractical system. Following our country’s departure from the EU, our changes will overhaul the UK’s obsolete rules, which our membership of the EU precluded us from doing. With these new freedoms, we will embark on radically simplifying the entire system and slashing red tape.

The new alcohol tax system will adopt a common-sense approach whereby the higher a drink’s strength, the higher the duty, while new reliefs will be made available to help pubs and small producers to thrive. In doing so, we have made a system that fits with our national priorities, encourages growth and innovation, aligns with public health goals and is fairer for hard-working producers. The aim that lies at the root of this reform is to make the system fairer, simpler to use and more supportive of business.

Notwithstanding those ambitions, we fully understand that businesses face difficulty and uncertainty in the face of rising energy bills and inflation. I have listened to and value stakeholders from across the sector, and I understand that they want certainty and need reassurance in these challenging times. That is why today I can confirm that the freeze on alcohol duty rates has been extended by six months, to 1 August 2023.

Although new duty rates typically come in on 1 February each year, I can confirm that the Chancellor will instead make his decision on future duty rates at the spring Budget 2023, to give businesses certainty and time to prepare. To further support the industry, we are going further by confirming that if changes to duty are announced then, they will not take effect until 1 August 2023. This is to align with the date that historic reforms of the alcohol duty system come into force, and amounts to an effective six-month extension to the current duty freeze. Most importantly, to minimise the burden on business, it avoids the sector having to deal with multiple changes to duty rather than one.

As I mentioned a moment ago, the alcohol duty reforms will help create a simpler, fairer and healthier duty system. A higher rate for sparkling wines will come to an end, meaning that they will pay the same rate as still wine. Liqueurs will be put on the same footing as fortified wine, meaning that a sherry will now pay the same duty as a spirit liqueur, and the duty rate on super-strength white cider will increase in order to address public health concerns.

New draught relief will be worth £100 million a year, and to ensure that smaller craft producers can benefit, the threshold for qualifying containers will be 20 litres. The wine industry will also be supported as it adapts to the new system. Duty on all wine between 11.5% and 14.5% alcohol by volume will have its duty calculated as if it were 12.5% ABV. This will last for 18 months from the implementation of the new system.

Pubs, cider makers, brewers, distilleries and wine makers have an historic place at the heart of our communities. They provide not only thousands of jobs, but hubs that enrich and often define the social fabric of our villages, towns and cities. By saying to the industry that it will face just one single industry-wide change next summer, rather than two over the course of the year, we are giving it maximum certainty. Hospitality is a major part of our economy, and while these remain challenging times, we are doing everything we can to support individual hospitality businesses of every size so that they can have a prosperous new year. I commend this statement to the House.

I thank the Minister for advance sight of his statement. The Government have confirmed that they are freezing alcohol duty rates for six months. I know that the sector will welcome the announcement, especially given the difficulties that businesses are facing, whether they are producers, suppliers or hospitality venues. I must say, however, that it is absolutely laughable that the Government have announced the change in the name of certainty. We should call it what it is: a U-turn. The previous Chancellor announced a freeze, the current Chancellor scrapped it, and now it is back on.

How did we get here? In October 2020 the Government announced a call for evidence to seek views on how the alcohol duty system could be reformed. At the time, they said that they would make the system

“simpler, more economically rational and less administratively burdensome on businesses and HMRC.”

What we have seen since then, however, is indecision, U-turns and delays.

The Government finally published a response to the alcohol duty consultation in September this year. Then in the shambolic mini-Budget that crashed the British economy, the then Chancellor announced a freeze on alcohol duty that was due to come into force in February 2023. The new Chancellor scrapped the planned freeze, however, in October’s autumn statement—just a couple of months ago. We now have a screeching U-turn; the freeze is back in place.

We see again that the Government have no long-term plan for the British economy. They cannot provide the certainty that businesses and their hard-working employees need to plan for the tough winter ahead. They have left businesses and consumers out in the cold. They may not want to hear it, but that is the reality. They are unsure what regulatory systems will be in place in as little as two months.

Today, Labour found that more than 70,000 venues have had to reduce their opening hours due to the price of energy bills, which means that almost a third of pubs, bars and hotels are missing out on customers at the busiest and most profitable time of the year. Those businesses and producers of wine, beer, cider and spirits enrich our communities and boost our high streets. I recently popped into the Standard, a pub in my Erith and Thamesmead constituency, which is really struggling with soaring energy bills and the lack of Government support. It needs the Government to be on its side. The Government promised to tell the House what the new energy bills support scheme would look like before Christmas, but we have yet to hear anything from them. Only Labour has set out a long-term plan to get our economy growing again.

Looking to the future, we agree with the principles behind the alcohol duty review and we want the alcohol duty system to be made simpler and more consistent. We recognise that there is a balance to be struck between supporting businesses and consumers and protecting public health, and maintaining a source of revenue for the Exchequer, but this statement leaves many questions unanswered.

Can the Minister give an indication of his plans for duty reforms in the coming spring? Can he confirm whether the alcohol duty reform package will be implemented in full? If so, what impact assessment has been carried out on the impact of the transition to the new duty regime? I hope that he can provide some clarity. The alcohol sector and the businesses and jobs that it supports have suffered enough uncertainty and U-turns. These are major changes that will affect businesses and consumers in all our constituencies, so I hope that they will be properly thought through and that we will not see last-minute policy announcements and changes, as we have today.

I am grateful to the hon. Lady. To be clear, this is good news for every single part of our alcohol industry and for those who drink in our pubs. Crucially, it gives certainty to the industry. The hospitality industry employed 2.1 million people at the latest reckoning, so it is a huge part of our economy and we want to do what we can to support it.

The hon. Lady mentioned a U-turn. To be clear, we said that we would introduce a radical reform of alcohol duty, and we will introduce that reform. It will come into effect next August. That reform could not have happened if we had not left the European Union. It will introduce, for the very first time, differential duty rates on tap and in the supermarkets. The public want that, because they value their pubs and understand the importance of pubs to their communities. [Interruption.] The hon. Lady intervenes, having sat down. She talked about her local pub. Obviously, we want to assist her local pub, and all pubs up and down the country; that is why we have put in place an energy bill relief scheme worth £18.1 billion, which is a huge intervention.

The energy bill relief scheme is very generous, but it is expensive, and we need to ensure longer-term affordability and value for money for the taxpayer. That is why we are carrying out a review of the scheme, with the aim of reducing the public finances’ exposure to volatile international energy prices from April 2023. We will announce the outcome of the review in the new year to ensure that businesses have sufficient certainty about future support before the scheme ends in March 2023. We should remember that this energy-related support comes on the back of the enormous support that we put in place during the pandemic. There were grants, bounce back loans, and of course furlough for all staff working in the hospitality sector.

We are proceeding with this ambitious reform package next year. We felt that it was appropriate to give the sector certainty as soon as possible that it would face only one uprating. That is the right thing to do, and it shows that the Government are supporting the hospitality industry.

Like the hon. Member for Erith and Thamesmead (Abena Oppong-Asare), who speaks for the Opposition, I support what has been announced today. I declare an interest: I drink most things, except super-strength draught cider.

On wine, using an average rate of 12.5% is right; stepped rates would not have worked, because growers do not know what strength a wine will be—the strength fluctuates naturally. A revenue-neutral level makes sense. I hope that this approach will continue beyond the 18 months.

I hope that the Minister will consider whether farm-gate concessions can be made for the growing number of vineyards in this country. I hope that between now and the Budget the Chancellor will calculate the price and tax elasticity, because often, when duty rates are frozen, revenue goes up. There have been times when the rate has gone up and the revenue has gone down, which is perverse.

I am grateful to the Father of the House for his question—I do not think that I will ever get another that mentions both elasticity and high-strength cider; it was an interesting combination of points. He made a very good point about wine. I have enjoyed engaging with all the main alcohol sectors, mainly in November, in the run-up to the making of this decision. As he knows, we are requiring all wine between 11.5% and 14.5% ABV to be treated as though it were 12.5% ABV for the purpose of calculating the duty rate. That will apply for 18 months, so there is a transition. We have to ask ourselves: if that were made permanent, would it not undermine a regime that is ultimately based on taxation by strength? I understand my hon. Friend’s point and will continue to engage with the sector on it.

I welcome the statement. I have long supported an alcohol content duty regime, and I hope that it delivers the fairness that the sector needs. As a gentle aside, may I say that we did not need Brexit to bring in this regime? The UK could have applied for a derogation, but it chose, over decades, not to do that.

I have some technical questions. The previous Chancellor, the right hon. Member for Spelthorne (Kwasi Kwarteng), announced a one-year freeze on alcohol duty in “The Growth Plan 2022”; that was due to cost £545 million in 2023-24. The current Chancellor scrapped that, but anticipates an additional yield of £1.3 billion in 2023-24; that was in the autumn statement 2022. First, how can a one-year freeze cost £500 million, while its cancellation in the same year suddenly generates £1.3 billion of additional yield? Also, we have been told that the freeze is being reintroduced and will last until August. How much will that cost the Exchequer?

The proposals following the post-2021 Budget consultation have been reported as having a modest cost of only £25 million next year—that was in the autumn statement Green Book. But this statement seems to suggest that the cost to the Exchequer of the draught beer relief scheme alone will be £100 million a year. Will the Minister explain what the net cost of this measure will be either to the Exchequer, or to the industry? As things stand, the numbers are not clear and in some cases do not add up.

I am glad that the right hon. Gentleman supports the principle of the reform package that will come into place next August. I hope Members across the House can do so. The cost obviously depends on what decision is made in the Budget next year. That is a matter for the Chancellor at the time. We know that that will be on 15 March, so there is not too long to wait.

The right hon. Gentleman made the point that it was not necessary to leave the European Union to make these changes. To be clear, EU law does not allow member states to differentiate beverages on qualitative characteristics such as whether the product is on draught. EU law actively discourages any attempt to support the on-trade through the duty system. That is also true for a system based on ABV; by and large, that would have been very difficult as well. The fact is that this is a radical reform and it has been made possible by Brexit.

I declare an interest as the chairman of the all-party parliamentary beer group, and someone who enjoys much of what we have been discussing. May I at least warmly welcome my hon. Friend’s statement? This will provide significant certainty to an industry that has experienced significant challenges over recent times, from the impact of weather on crops, to the impact on energy prices on the back of the fallout from covid. So this is a much needed platform on which the industry can build a strong future. It is looking forward with enthusiasm to the differential draught beer duty. That is an important principle. Come the Budget in March, will the Minister consider going much further that the 5% that has already been promised? The principle, and the Brexit dividend, can bring significant benefits to our pubs and beer industry across the country.

I am extremely grateful to my right hon. Friend for his comments. He has become the chairman of the all-party beer group, but we should remember the work of the former chairman, my hon. Friend the Member for Dudley South (Mike Wood). He cannot speak as he is a Whip, but he put in place all those sessions lobbying MPs and Ministers and making the case for beer. Much as we enjoy that, it is a major employer in this country. My right hon. Friend makes an important point about differential duty. To put that in context, the 5% cut to cider duty will be the biggest cut to cider duty since 1923, so it is significant. Of course I cannot from the Dispatch Box make decisions for the Budget next year, but it is not too far away and I am sure there will be plenty of chances for colleagues to engage up to then.

Stockport has several wonderful producers, including Robinsons Brewery and Stockport Gin, and they have been through a lot over the past few years. When will the Government finally end the U-turns and delays, and agree a long-term solution and support package for the alcohol sector?

I am grateful to the hon. Gentleman for mentioning the producers in his constituency: Robinsons Brewery and Stockport Gin. I am grateful to them for all they are doing in these challenging times to provide employment in his constituency and support consumers with the products they offer. That is what this is all about—supporting those companies and vital sectors in our constituencies. The hon. Gentleman asks about a long-term commitment. This is the biggest reform to alcohol duty for 140 years. It is a significant reform, getting the balance between competitive rates of duty and consideration of public health, which is incredibly important. It is an opportunity we should all seize and welcome.

I warmly welcome the proposals announced by the Minister today in one of his most impressive performances at the Dispatch Box, and in particular the differential duty rates to allow pubs and restaurants to charge their customers a lower rate of duty than the off-trade, for which many of us have called for a long time. I also congratulate him on the point made by the Father of the House—differential rates on wines will be consolidated to a single rate for the vast majority of wines—because that reaches the principle of simplicity, which was an essential part of the consultation. What is the 18-month period dependent on? If we were to move then to differential bands per percentage of ABV, that would not really help the trade to prepare. The trade needs to know where it is going.

I am grateful to my right hon. Friend for his kind words. My first ever Parliamentary Private Secretary job was as a PPS to him, as a brilliant Health Minister. He mentioned simplicity: he is absolutely right that that is a key part of the reform package. In terms of the wine easement, as we call it, the 18 months is there precisely to enable the sector to adapt to the changes that are coming. He was also right to emphasise the on and off-trade differences. There is a key point on those differences. It is again about public health. The evidence shows that, while all drinking should be done responsibly, where people are socialising and going to the pub, they are less likely to encounter the more severe end of problem drinking; that is more likely to happen in private. That is one of the reasons why we have the differential.

The hon. Lady makes an important point. We are aware of the importance of energy costs. I was absolutely clear just now that we will report in the new year. It has taken slightly longer than expected. These are complex matters. It is complex enough to put in place household support. Non-domestic support is particularly complicated because of the huge range of businesses involved. However, let us be clear what is happening: six months of support since October, worth £18.1 billion for businesses, including pubs, distillers and breweries, with their energy bills. That is huge. Of course, I know that people want to know what happens next and in the new year we will come forward with the results of our review.

It is encouraging to hear support from across the House for these duty reforms, which were originally announced as a manifesto commitment at Roseisle distillery in my constituency. Of course, Moray is home to more Scotch whisky distilleries than any other constituency in the House. [Interruption.] As my hon. Friend the Member for Milton Keynes South (Iain Stewart) says, many are very good ones. I have been pressing both the Chancellor and the Prime Minister to maintain the freeze on duty for Scotch whisky for as long as possible, which is important for the entire industry and the jobs that rely on it. Will the Exchequer Secretary take on board what the Father of the House said? When it comes to the Budget in March, will the Government listen to the industry, which has time after time proven wrong Treasury officials who predicted that an increase in duty would increase revenue to the Treasury? In fact, a freeze in duty increases revenue to the Treasury and it would be welcome to see that continuing.

I am extremely grateful to my hon. Friend, who speaks with great knowledge on these matters. He has been a consistent champion for the Scotch whisky industry, standing up for it in this place, whether on tariffs or duties. I know that he was lobbying the Chancellor and the Prime Minster to continue the freeze, so I hope that he is pleased with the result. On what happens going forward, I will engage with the Scotch whisky industry and indeed all the other alcohol sectors. The clear point is that the extension of the freeze is good news for every single sector and I hope that colleagues welcome that.

I am not sure whether I should declare an interest, but I do enjoy a tipple—a glass of beer—on occasions. I thank the Minister for his statement. May I seek clarification in relation to his comments on differential rates of duty? He mentioned the need for certainty and the need to encourage diversity in choice in the small brewery sector. He referred to the new draught relief, worth £100 million a year, to ensure that smaller craft brewers can benefit, and he mentioned that the threshold for qualifying containers will be 20 litres. Can he go further and say something about the duty taper? Are the Government going to address the cliff edge above 5,000 hectolitres for small producers?

The hon. Gentleman makes a good point. To clarify, the draught relief is the new differential duty between the rate applied to alcohol purchased on draught—in other words, in the pub—as opposed to, for example, in the supermarket. This is about creating a level playing field. Small brewers relief is becoming small producers relief, so it extends to cider makers, for example.

As a general point, I have a chart here—you will be pleased to know, Mr Deputy Speaker, that I will not get it out—showing the old rates and the new rates that will come in under the reform, and it is striking how much leaner the new system is. I am more than happy to write to the hon. Gentleman with details of the taper and the technical points. I think he will observe that this is a much simpler system.

I welcome the extension of the duty freeze and am particularly pleased to see the draught relief to support the important on-trade. Can my hon. Friend comment or write to me about the proposals for mergers and acquisitions to absorb production over three years rather than one? Basically, allowing that to happen would facilitate a smoother business transition and smoother ownership in the sector.

Of course, my hon. Friend was an Exchequer Secretary to the Treasury, and I should put on record that he did much of the work that led to us being able to deliver these reforms in the first place. On his question about mergers and acquisitions, I am more than happy to meet him and share with him further detail from officials about the matter.

I speak as the chairman of the all-party parliamentary group on alcohol harm. I thank the Minister for recently meeting me and alcohol harm charities. I welcome the introduction of duty in regard to the strength of drinks, but my view is that it still does not go quite far enough, although I appreciate the differential duty. What assurances can he give me, alcohol harm charities and all those concerned about alcohol harm that he will continue to work cross-party and cross-Department to ensure that public health is fundamental in any alcohol duty changes?

I enjoyed meeting the hon. Gentleman, other parliamentarians and alcohol harm stakeholders on, I think, 24 November in the Treasury. It was a good meeting, where I think there was acceptance that we are trying with the reform package to strike that balance. We want to have competitive duty rates and to look at levelling the playing field that exists between pubs and supermarkets, but, equally, alcohol harm and consideration of public health must be at the heart of this. That is why the reform package in August has one underlying principle: taxation on the basis of ABV. We think that that is the right way forward, balancing both those approaches.

I very much welcome the statement. It is good news not simply because the hospitality industry is on its knees, but because the steep increases in prices have led to more people having not a social drink with friends but a sustained drinking at home mentality, which can be detrimental to families. Has the Minister considered taxation aimed at multibuys in supermarkets, in co-ordination with the welcome freeze for pubs and hospitality?

I am grateful to the hon. Gentleman for his comments. As I said last time he asked me a question, the occupant of the Chair always seems to save the best till last. The hon. Gentleman hit the nail on the head. Let us be clear. He is talking about friends who cannot go for a drink because of economic pressures. With the enormous surge in energy costs and the rise in inflation, the biggest impact economically is on consumption and therefore discretionary spend such as in pubs, hitting hospitality. When we talk about the support that matters, it is not just help for businesses with their energy bills but the help that we are giving to consumers, so that they can still find that expenditure to support our pubs this winter. Of course, we are helping them by freezing duty for six more months. It is a win-win for consumers and for the sector.

I thank the Minister for his statement and for responding to questions for just under half an hour.

Deputy Speakers

Ordered,

That, for the period up to and including 31 January 2023,

(1) in the absence of Dame Eleanor Laing, the functions reserved to the Chairman of Ways and Means by Standing Orders or the practice of the House shall be exercised by Dame Rosie Winterton, or, if she is unable to perform them, Mr Nigel Evans; and

(2) Sir Roger Gale shall act as Deputy Speaker and shall exercise all the powers vested in the Chairman of Ways and Means as Deputy Speaker.—(Penny Mordaunt.)